The wheels ARE coming off RIM’s aspirations in smartphones. In 3Q of 2009 the Canadian Blackberry maker reached its peak in market share at 21%. And while its market share erosion since had been steady, but slight and gradual (about one market share point per quarter loss, down to 14% market share in 1Q of 2011) the total number of Blackberry smartphones had still be growing every single quarter up to now.
RIM First Quarter 2011 Results
As we reported earlier, RIM’s quarterly results came out last week. For the first time we heard RIM reporting a decline in Blackberry unit sales from first to second quarter. A decline of 10 percent in unit sales, down from 14.5 million Blackberries in the previous quarter, to 13.3 million now. RIM’s market share was 14% last quarter, and by my early projections for full 2Q smartphone sales of about 107 million units, RIM’s market share has now dropped to 12%.
The market share decline can be ‘understood’ by RIM’s particular niche focus in two specialist segments that fit its products and services – the business/enterprise customer segment and the youth/texting segment. These were ‘early adopter’ segments and their proportion of all smartphones was disproportionately large early on in smartphones, and as more and more ‘normal’ people get smartphones, their relative size will of course shrink. But the overall smartphone market is growing strongly this year (anywhere from 50% to 75% growth year-on-year) so RIM should be benefitting from the fact that the total market is growing.
It is not. In fact RIM is seeing a massive rejection of its product now. If the market grew by about 5% and Blackberry sales declined from the previous quarter by 10%, it means Blackberry lost a total of 15% of its natural customer base. What was once a highly addictive user base and loyal customer base for Blackberry, seems to be abandoning the brand.
Where is The Nokia Windfall Benefit?
And where are all those ‘disgruntled’ Nokia-Symbian clients, who used Nokia QWERTY phones like the E-Series? We know from Nokia’s own statements that Nokia smartphone sales are collapsing right now. In fact we hear from the sales channel that Nokia is effectively in boycott, as the resellers refuse to sell Nokia-Symbian smartphones. So, a customer walks into a store, asks for a Nokia QWERTY phone like an E-Series and the sales guy says they don’t stock that model, but sells then what? Another QWERTY phone of course.
Why are these not translating into Blackberry sales? Is HTC Desire Z the secret winner?
I calculated in the February analysis about the preliminary numbers of the Nokia Bonus 2011: Gift customer giveaway of premium Nokia Symbian customers, to be roughly 50 million in size this year. I also said that the four smartphone makers to gain most out of the Nokia giveaway were Samsung, Apple, RIM and HTC. So RIM is a ‘natural’ beneficiary of the 2011 Nokia customer giveaway. I estimated that for the full year 2011, from February, RIM should gain a bonus of about 6 million Blackberry smartphones this full year, or about 1.5 million per quarter.
Think for a moment. If you are heavily addicted SMS text messaging user, and have had a Nokia E-Series or another Nokia QWERTY phone, then you will not naturally want a pure touch screen phone. The Apple iPhone for example is not the natural ‘replacement’ but a Blackberry would be. Roughly speaking, about a fifth of Nokia’s smartphones have been in the business/enterprise and youth segments, mostly QWERTY based smartphones.
But more than that, the two customer segments MOST likely to ‘instantly’ learn about Symbian being obsolete, and instantly wanting to switch away from Nokia Symbian phones, are not elderly people or family users or camera buffs etc. The users who are most dependent on the phone for business, are those who really need the phone for business – like travelling salespeople for example – and those most addicted to the phone – the youth segment. The enterprise/business user will not be deciding on which smartphone operating systems the employer will be supporting in its IT department and which brands of smartphones the employees are allowed to buy. Those decisions are made by the employer. And if the company had already been ‘sold’ on how great Nokia E-Series is – which in many ways was a Nokia business unit set to mimic Blackberry – isn’t the natural home of that customer, if they no longer want Nokia Symbian – to be Blackberry then? No?
And if the other instantly aware customer segment, who know smartphones the best and consume them the most (and all services on them) ie the youth segment and young adults – if anyone in that segment was buying the Nokia consumer oriented smartphones with QWERTY keyboards – isn’t for them also the natural alternative specifically the Blackberry?
We do know that Nokia smartphone sales are plummeting worldwide. Those customers walked into the phone stores intending to buy a smartphone with a likely preference that it would be Nokia. They didn’t buy Nokia because of the reseller boycott. But their need to have a new smartphone did not disappear. So they did walk out of the store with something else? Some will have gone from Nokia to the iPhone, I am sure, but those would mostly be the type of customer who is not addicted to SMS/messaging and didn’t have an E-Series or other Nokia QWERTY phone. So what then? Androids, Samsungs, HTC’s. But really, no Blackberries?
This is the golden age of smartphones. BlackBerry is one of the most recognized, iconic, established brands with a high loyalty in its target segments. Why is it failing now? This is a mystery. And where are those customers going?
If we count a 2Q Nokia shortfall of about 10 million Nokia-Symbian smartphone sales decline from 1Q in total, and now add Blackberry losing another 1 million sales, we already are ‘in a hole’ the size of 11 million. And Apple analysts are suggesting iPhone sales have declined from 1Q with the China bonus sales, especially because there is no new iPhone 4S/5 for June, so they are expecting iPhone sales in the 15-17 million levels. If we say that is 17 million, that would mean Apple branded smartphone sales would be down almost 2 million from their 1Q level. Now we have a total ‘hole’ the size of 13 million!
Who has all those sales? It can’t be Android based smartphones on Samsung, HTC, SonyEricsson, LG and Motorola, because Google itself says Android activations are up yes, but only to 400,000 per day so their sales now is about 37 million. That’s only up about 2 million from 1Q. Where are 11 million smartphones? 10% of the total market is ‘missing’.
Samsung’s bada may have some, but again, I am curious that Samsung hasn’t yet announced their 10 million milestone. And it can’t be Microsoft, the sales of its new WP7 operating system is so bad, that its biggest supporter, HTC announced they are shifting most of Microsoft phone production away from Microsoft and onto Android. In fact after the Microsoft purchase of Skype, all Microsoft based smartphones are now also in reseller boycott by the carriers/operators who hate Skype. So the missing ten million smartphones are not in the Microsoft camp either. Where are they?
RIM Has Peaked
So, that is a big mystery to me. I will seek to find out where our phones are, and why they are there. Maybe the whole market is now going through a correction and 2Q total smartphone unit sales are down from 1Q? Because Apple’s iPhone 5 is delayed and Nokia is collapsing and Blackberries also falling in sales, maybe there is a tiring of the smartphone hysteria and we see a ‘correction’.
But the big early bombshell news in Year 2 of the Smartphones Bloodbath, is that Blackberry’s unit sales have now peaked. I think it’s fair to say, it was not the iPhone that killed the Blackberry, as RIM managed to grow both unit sales and market share of the Blackberry through the first two full years of the sales of iPhone. But once Android came along, Blackberry saw its market share peak in late 2009 and now in early 2011, we see Blackberry’s unit sales to have peaked too. Their best quarter was 14.5 million Blackberry sales. Now they are in decline.
And they have the typical management ‘solution’ to the problem – they are firing staff. That may be good for the bottom line, but in this age of the strongest growth in smartphones ever, that is a very short-sighted move. Now is not the time to cut sales staff – Blackberry enterprise/corporate sales are long sales cycles. Now is not the time to cut Blackberry marketing because the increasing part of Blackberry sales are now to consumers where most sales are driven by marketing. Now is not the time to cut R&D, as this is the most creative, inventive and innovative time in smartphones.
I do think that the tablet PC market is in hype mode, and one where enormous R&D effort is needed to keep up with Apple’s iPad and where very heavy investments can result in tiny gains in market share. I am afraid that Blackberry’s tablet adventure is hurting them unnecessarily. But I am sure that most who own Blackberry shares and most who study the RIM strategy would think that RIM has to mimic Apple, so if Apple does a Tablet, so too must RIM…
Meet the ONLY phone RIM announced in 2011: BlackBerry 9900 Bold Touch. Still not available.
But as RIM cuts staff, that will hurt its chances to claw back market share in smartphones this year, shaken by continuous product delays (RIM only announced ONE phone in whole of 2011!). Their market share is now to approximately 12% and in severe decline. Two market share points to lose in one quarter is very dangerous in this industry and must be stopped very soon or we will soon start to think of the Blackberry as yet another dead phone brand in the style of the Palm and Microsoft Kin and Nokia Symbian…
Very poor quarterly results from RIM. Very bad performance in this bloody year of smartphones. To use boxing metaphors, RIM, a past champ has taken it on the chin and has fallen to the canvas and is facing a count. Blackberry is not yet out, but staggers up onto its feet feeling very wobbly. Of perhaps, to put it in ice hockey terms for our Canadian readers, it’s the Stanley Cup playoffs, you’re in overtime in a game, and your team takes a penalty. It’s not the end of the game yet, but this is the worst time to be playing one man short on the ice.
RIM needs to turn it around really fast for 3Q. This is perilous indeed.